Hi, I’m Daniel Mateos, CEO of Pyckio. Thank you for your article. I would like to make some comments and answer your concerns.

First
of all, about the Centaur Galileo fund, they told investors that they
lost it all due to "sheer bad luck". I think this is a sign that the
managment wasn’t too professional precisely.

We have real
professional experience in financial markets and we’ve been profesional
bettors. We’ve also Ph.Ds in Economics and experts in statiscical
models. We know well how the betting market works and we are conscious
of the liquidity issues. Of course, our expertise per se doesn’t
guarantees that the fund will be succesfull. I just want to make clear
that we’ve decided to embark on this project knowing the reality and the
constraints.

About the tipsters survivorship bias, we are also
fully aware of it. We know how difficult is to find genuine long term
winners but we’re also sure that working with Pinnacle + some exchanges +
asian bookies, we can achieve a low aggregate margin and therefore be
capable of achieving a positive low expected aggregate yield in
thousands of bets every year. About our risk system, the weight of every
individual bet will be negligible.

To cope with the survivorship
bias, we’ll set up a 2nd qualitative filter, that will be mainly
personal interviews with the potential analysts that will feed the fund.
From our experience, when you speak with a tipster, you can't never
assure if he will succeed in the long term but with some of them you can
certainly assure that they won’t. Tipsters who do not understand that
this business isn’t about finding winners but about detecting wrong odds
are doomed to failure. We are pretty sure there are tispters out there
who are genunine long term winners. They aren’t the norm obviously but
they exist.
Our intentions are to have some of the best analysts
(from Pyckio and also from outside) in as many as competitions/leagues
as possible. The Fund will be highly diversified (analysis, sports and
competitions) to cope with the liquidity issue as much as possible. As
you write, as long as the fund gets bigger the liquidity constraints
will be higher. We know this reality and we’re not ambitioning a 100
Mill. € fund. We’ll be monitoring closely the market capacity to stop
accepting subscriptions when we notice the market cannot longer accept
more money coming in. Moreover, as long as we’ve got more funds to
manage we’ll be adding additional sources of alpha such as live betting
strategies. We might also incorporate more quantitative analysts to our
team. Any strategy (live or prematch) that is presented to us and passes
our due digillence analysis might also be incorporated. In exchange and
leveraging on the potential profits we can generate, we’ll offer the
“alpha provider” a percentage of the potential gains. Therefore, anyone
could be able to leverage on our fund as a way to exploit a winner
betting system.

We know there are big syndicates out there who
win money betting time and again. There is one in IOM with around 30
people working, what suggests there is quite posible to achieve a
positive return if things are done very well. At the end, our task will
be constantly find inefficient odds everywhere, be it through the
analysts/tipsters we’ll collaborate with, via our in-house generated
systems or with external ones. About in-house generated systems we’ve
got a great set of Big Data (> 5 Mill. Picks submitted at real
Pinnacle odds) that we can take advantage of. We know bettors biases and
we know where they are most likely to win and where they are most
likely to lose. That is, we know where inefficiencies are more likely to
be found.

To sum up, we’re quite confident we’ll be able to deal
with the market capacity issue and hope to be finding new sources of
“real positive expected yield” as we get bigger. Shouldn’t we find them,
we’ll stop accepting new subscriptions so that the fund performance
won’t be accepted.

Kind regards

NB - Daniel left an updated comment but my server did not alert to its presence until April 3rd. You can read the updated comment here.

Smithlondon left a comment on my original article and had this to say about

Daniel's original comment.

Well if I was ever interested in such a scheme (which I am not) then
this reply by the "CEO" has certainly confirmed my opinion about this
one. What a lot of tosh he writes (and poorly to boot). Yes, let me give
you my profitable betting strategy so I can become an "alpha provider"
so that we can leverage that edge out of existence. Thanks for the
thoughtful and thought provoking site James

I agree with Smithlondon, why give away your edge? What is in it for a trader to allow others to profit from a hard won edge? As I have said many times, "An edge shared is an edge halved." With Pyckio, you won't see half your edge lost if you share it within a fund with hundreds, if not thousands of members, you will see your edge obliterated. How is Pyckio going to reward its tipsters above and beyond what they can earn from trading alone?

Use of the term "hedge fund" doesn't sit well for me in a sports trading context because what are you hedging against? It's not as though you are buying Manchester United stock and then hedging it falling in price by selling (laying) United's chances of winning the Premier League.

Hedge funds make their profits by performing statistical arbitrage and looking for hedged positions that profit, win or lose. Pyckio's operation appears purely speculative with none of the hedging and risk management you would see in a financial hedge fund.

Also, I do not like the comparison between this fund and a syndicate, which is usually created for the betterment of one or two with their staff receiving a pittance. It certainly looks that way if tipsters are being asked to handover their edge. The only people being guaranteed a profit are the fund owners who will profit- win or lose - from administration charges.

I don't see anything to suggest that Pyckio is building anything that can compete with Tony Bloom's Starlizard, an operation with in-house analysts. Instead, lone tipsters in their bedrooms are expected to compete without collaboration on building trading models. Unless Pyckio are keeping something to themselves, I can guarantee that this fund will not be making profits from its trading models. However, its admin fees will probably keep the "syndicate" more than happy.

2 comments:

I think that the Pyckio fund will be turning over a centesimal portion of what Starlizard does, but that doesn´t mean it can´t be successful. The question here is if the winnings will be enough to cover for the admin fees.There are also reasons to give away your edge, if for example you live in a country with a high gambling tax (as Spain is). Maybe you are better off only paying tax on the commission you would generate as a consultant (as you would never have losing years like that.